The Motley Fool

The Royal Mail share price is flying. I’d rather buy this top UK growth stock

Image source: Getty Images

The Royal Mail share price is up a little over 70% in the last six months. As good a result as this is for those that bought at the height of the Covid-19 market crash, I still can’t be tempted to invest.

Royal Mail share price: finally delivering

There are a few reasons why investors appear to be taking a fresh look at Royal Mail. First, you have the recent half-year results.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

As a result of shoppers moving online during lockdown (and thus needing their purchases delivered), a 10% rise in revenue was recorded in the six months to 27 September. The company also raised its forecasts on revenue for the full financial year. The fact that profits tumbled by 90% didn’t seem to bother the market all that much. 

Indeed, another contributing factor to the rise in the Royal Mail share price has been the change in analyst sentiment towards the stock. Back in November, JP Morgan upped its target price by 48%!

On top of this, you have the general tilt towards so-called ‘value stocks’ over the last few weeks. News of promising coronavirus vaccines has seen traders adopt a risk-on mentality. Accordingly, they’ve thrown money at companies they’d previously steered clear of. Royal Mail is one such business.

Not for me

Despite the change in general market sentiment, I can’t get excited. The parcels division may be doing well but there’s no shortage of competitors striving to take business from the FTSE 250 constituent.

Moreover, the full impact of a recession on the company remains to be seen. With levels of unemployment likely to continue rising as firms of all sizes adapt to the ‘new normal’, there’s no guarantee that people will go on a spending spree when the pandemic has passed. Even if they do, I suspect it’s more likely to be on outside activities and experiences rather than on things that need posting. 

Given this environment, wafer-thin margins and a not-insignificant amount of debt, I doubt that the Royal Mail share price will turbocharge peoples’ wealth anytime soon.

Here’s one that might. 

A better growth play

Self-proclaimed ‘global identity data intelligence specialist’ GB Group (LSE: GBG) is one of those companies I’ve been following for years and yet never bought. More fool me. In the last three years, its shares have more than doubled in value. By contrast, the Royal Mail share price is below where it was back in November 2017.

Today’s interim results from the business suggest there could be even more gains ahead. Thanks to additional demand from existing customers and contract renewal rates being maintained, revenue rose 9.8% to £103.5m over the six months to the end of September. Post-tax profit more than doubled to £11.8m, while net debt fell from £53.8m to just £2.7m over the period.  

Understandably, GB remains cautious about the impact of Covid-19 on business going forward. Notwithstanding, it feels it’s “well-positioned” given the need for all companies to embrace “digital acceleration.” The announcement of a 3p per share interim dividend would seem to back this confidence.

The Royal Mail share price may be showing great positive momentum right now. However, I think it’s likely GB Group will post better gains for holders over the medium-to-long term.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.